China and India’s energy development pathways are a frequent focus of international attention. In the climate change arena, the two countries’ current and future energy growth trajectories raise concerns about increasing greenhouse-gas emissions. China recently surpassed the United States as the largest national emitter of greenhouse gases, and India will soon surpass Russia to become the fourth-largest emitter after the European Union. China and India use coal to fuel most of their electricity generation, and both countries have plans to expand their coal power capacity considerably in the coming decade. For these reasons, China and India are perhaps two of the least likely places one might expect to find a burgeoning wind power industry.
While there are many potential benefits to local wind manufacturing, there are also significant barriers to entry into an industry that contains companies which have been manufacturing wind turbines for more than 20 years. In developing countries, limited indigenous technical capacity and quality control makes entry even more difficult. International technology transfers can be a solution, although leading companies in this industry are unlikely to license information to companies that could become competitors.
Nevertheless, India and China are both home to firms among the global top 10 wind turbine manufacturing companies. India currently leads the developing world in manufacturing utility-scale (multi-kilowatt) wind turbines, and China is close behind. Initiatives by domestic firms, supported by national policies to promote renewable energy development, are at the core of wind power innovation in both countries.
Leading firms
Suzlon, an Indian-owned company, emerged on the global scene over the past decade, and is proving itself to be a worthy competitor among more established wind turbine manufacturers. As of 2006, it had captured 8% of market share in global wind turbine sales: a modest share, but one that has been increasing annually. Suzlon is currently the leading manufacturer of wind turbines for the Indian market, holding 52% of the market share in India. Its success has made India the developing country leader in advanced wind turbine technology.
Goldwind recently emerged as the leading Chinese wind turbine manufacturer. The company currently holds 2.8% of market share in global wind turbine sales, reaching the top 10 for the first time in 2006. Within China, it captured 31% of sales in 2006. The company is rapidly expanding production, and has benefited from government policies that promote the utilisation of domestically manufactured wind turbines in Chinese wind farm projects. In 2006, Goldwind installed 442 megawatts, by far its largest annual installation to date.
Suzlon and Goldwind have used similar strategies to access wind power technology from developed-country firms. Although there are several technology transfer models available to a company looking to enter the wind industry, both Suzlon and Goldwind decided to pursue multiple licensing arrangements with established, yet second-tier, companies.
The acquisition of technology from overseas companies is one of the easiest ways for a new wind company to quickly obtain advanced technology and begin manufacturing turbines; however, there is a disincentive for leading wind turbine manufacturers to license proprietary information to companies that could become competitors. This is particularly true for technology transferred from developed to developing countries, where a similar technology potentially could be manufactured in a developing country with less expensive labour and materials, resulting in an identical but cheaper turbine. Consequently, developing country manufacturers often obtain technology from smaller wind power companies that have less to lose in terms of international competition, and more to gain in license fees. The technology obtained from these smaller technology suppliers may not necessarily be inferior to that provided by the larger manufacturing companies, but it may have been used less and will therefore have less operation experience.
Licensing
Suzlon’s licensing arrangements with Sudwind, Aerpac, and Enron Wind provided it with the necessary base of technical knowledge needed to enter the wind turbine manufacturing business. Building on the knowledge gained through these licenses, Suzlon also formed many overseas subsidiaries. Some overseas partnerships were formed with foreign-owned companies, either to manufacturer a specific component, such as its gearbox company in Austria, or to undertake collaborative research-and-development, such as its Netherlands-based blade design centre and its gearbox research centre in Germany. Suzlon also situated its international headquarters in Denmark, which is a major industrial centre for the wind turbine industry.
Goldwind’s licensing arrangements with German wind turbine manufacturer REpower allowed it to jump into the wind turbine industry with little indigenous knowledge. These arrangements provided the transfer of enough technical know-how that Goldwind could innovate upon the transferred technology. It has more recently chosen to also pursue licensing arrangements with Vensys to gain experience related to larger turbine designs.
While Goldwind has relied only on licensed technology to date, Suzlon has expanded beyond the license model, and has purchased majority control of several wind turbine technology and components suppliers. These acquisitions include leading gearbox manufacturer, Hansen, as well as REpower. This combination of licensing arrangements with foreign firms and internationally based research-and-development and other facilities, complemented by the hiring of skilled personnel from around the world, has created a global learning network for Suzlon, customised to fill in the gaps in its technical knowledge base. Suzlon has been able to draw upon this self-designed learning network to take advantage of regional expertise located around the world, such as in the early wind turbine technology development centres of Denmark and the Netherlands. Suzlon differs from Goldwind because it has not restricted its technological learning and innovation networks primarily to India, while Goldwind has remained centred on China.
However, Goldwind’s lack of internationally oriented expansion does not necessarily mean that it has been unable to tap into regional, or even global, learning networks. The company’s origins in northwest China’s Xinjiang autonomous region put it at the centre of wind turbine technology experimentation in China in the early 1990s. As wind development momentum shifted eastward, Goldwind also established manufacturing facilities in east China, including in the new manufacturing hub around Beijing and Tianjin. Popular wind farm sites such as Dabancheng, in Xinjiang, and Huitengxile, in Inner Mongolia, have served as test sites for almost all of the leading global wind turbine manufacturers. Many firms, including Vestas, NEG Micon, Nordex, Bonus, Zond, and Tacke, all installed turbines in China during the 1990s. Consequently, while they tested their designs in China, Goldwind was able to benefit from knowledge that these manufacturers had gained in other wind learning hubs of the world. In addition, Goldwind hired employees trained by foreign-owned firms (often when they were based in China), taking advantage of the small but specialised work force foreign wind power technology firms effectively developed within China.
Since both Suzlon and Goldwind are most successful at home, each company’s outlook for future success is largely focused on its continued ability to thrive in domestic markets. India’s wind power policies, although lacking a clear national direction, are thriving on a regional basis. Goldwind has relied greatly on China’s policies that mandate local content, as well as an unstated preference for Chinese-owned technology. The companies’ continued success will also depend on how their turbine technology stands the test of time in reliability, as well as their ability to continue to design larger and more efficient turbines. If Indian and Chinese manufacturers are able to capture significant cost savings by manufacturing turbines locally, there would be excellent potential for both locations to serve as manufacturing bases for regional export. Suzlon and Goldwind believe that they are able to beat the prices being offered by their foreign competitors by locally sourcing their turbines.
The leapfrog effect
The institutional and other barriers present in large, developing countries such as China and India certainly challenge simplistic notions of energy leapfrogging. But substantial technical advances have been possible in relatively short amounts of time. It took both countries less than 10 years before companies were capable of manufacturing complete wind turbine systems, with almost all components produced locally. This was done within the constraints of national and international intellectual property law, and primarily through the acquisition of technology licenses or purchasing smaller wind technology companies.
Suzlon’s growth model, in particular, highlights an increasingly popular model of innovation for transnational firms, which is based on globally dispersed operations and utilises regional variation in technical expertise and low input costs to its advantage. Expansive international innovation networks allow it to stay abreast of wind technology innovations around the world, which it can then incorporate into its own designs through extensive research-and-development facilities. It has developed this network of global innovation subsidiaries while maintaining control of enough intellectual property rights to remain at the forefront of wind turbine manufacturing and sales around the globe. By contrast, Goldwind has pursued research and manufacturing operations that are primarily China-based, which has limited its interaction with hubs of wind power innovation expertise outside China. However, China is becoming a hub in its own right, with diverse international players actively manufacturing wind turbines, and many in close regional proximity.
These illustrations of energy leapfrogging demonstrate how two developing country firms used a creative blend of strategies to enter new technology markets. A combination of licensing intellectual property, creating strategic technology partnerships, accessing regional and global learning networks and taking advantage of regional advantages like lower labor costs, were all important components of each company’s successful business model. As technology development becomes increasingly global, developing country firms can and should take advantage of their increasing access to technological know-how, which was previously developed primarily by and for the developed world. The lessons of Suzlon and Goldwind’s success in harnessing global technology for local – and potentially global – use illustrate new models of technology development in the developing world.
Dr. Joanna Lewis is a senior international fellow at the Pew Center on Global Climate Change and an adjunct professor at Georgetown University’s Walsh School of Foreign Service. Her current research focuses on mechanisms for low-carbon technology transfer in the developing world and options for post-2012 international climate agreements. She has worked extensively in China examining renewable energy technology industry development, and advising the government on renewable energy policy design.
An extended version of this article appeared in Studies in Comparative International Development, Volume 42, Issue 3, December 2007.
Homepage photo by dengski